Maker of Candy Crush Puts Value at $7.6 Billion

Candy Crush Saga, developed by King Digital Entertainment, is one of the most popular online games.Credit Gabriel Bouys/Agence France-Presse — Getty Images

Updated, 8:41 p.m. | A planned initial public offering of stock by the maker of the wildly popular game Candy Crush Saga will test just how far one hit can take a company.

King Digital Entertainment, which makes the game, said on Wednesday that it expected to price its shares from $21 to $24 each in its forthcoming offering, which would value the company at $7.6 billion. Should King persuade investors to pay at the top end of the range, its stock would be valued 54 percent higher than that of Zynga, the publisher of FarmVille and Words With Friends.

Even so, the offering values King at a discount to other video game companies, possibly reflecting caution about the company’s reliance on its megahit, which accounts for nearly 80 percent of its earnings.

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Each day, 97 million Candy Crush users try to line up three or more pieces of matching virtual confections in a simple but addictive game formula. It is a spin on a traditional “match three” game, with new levels regularly introduced along with new features that keep customers coming back.

Candy Crush has suddenly made King — which has development studios in London, Sweden and San Francisco, among other places — into one of the biggest upstarts the gaming world has seen in years.

It is difficult to overstate how much that simple game has contributed to the rise of the 11-year-old King, which was a prolific if relatively unheralded game maker before creating its big hit. The company reported nearly $1.9 billion in revenue last year, compared with just $164 million in 2012.

King’s startling growth in recent years is further proof of how thoroughly so-called freemium games have upended the conventional business model of the games industry. In that approach, games are free for anyone to play, but players may buy virtual items — a costume to decorate a character, say — or opportunities to accelerate their progress in games.

The vast majority of players in most freemium games never buy anything. The small percentage who do, though, often spend with abandon.

The freemium approach to games first took off in Asia more than a decade ago, where high rates of software piracy forced game publishers, like Nexon, to come up with innovative ways to profit from their creations. Zynga was among the first wave of United States companies to successfully import the business model with Facebook games like FarmVille.

While Zynga has struggled to repeat its early success on Facebook in the mobile market, others, like Supercell of Finland, have thrived by focusing exclusively on the devices. Supercell, which makes the hit Clash of Clans, said recently that its revenue rose nearly ninefold in 2013 to $892 million from the previous year, and its pretax income was $464 million in 2013 compared to $51 million in 2012.

In October, Supercell was valued at about $3 billion after SoftBank, the Japanese telecommunications company, bought slightly more than half the company for $1.5 billion.

But King’s disclosures have led many analysts to question whether the game maker can continue to thrive as a public company once its biggest hit fades in popularity. Its second-most-popular hit, Farm Heroes Saga, has an average of 20 million active users a day.

Though King began producing games for the web, the success of Candy Crush has prompted the company to focus more on games for mobile devices that also hook into social networks like Facebook, subtly keeping customers hooked on titles that they and their friends are playing.

As of Dec. 31, 73 percent of King’s gross bookings — a nonstandard measure that tracks how much users pay for virtual items and other goodies — came from mobile apps.

But the company has warned that it expects Candy Crush to decline over time and contribute less to its sales. It disclosed that the game’s gross bookings fell in the fourth quarter last year, though other games managed to offset that drop.

Candy Crush’s worldwide popularity has also enriched King’s investors, including Apax Partners and Index Ventures, and the developer’s management. Even at the low point of the proposed offering range, Riccardo Zacconi, one of the company’s founders and its chief executive, would be worth more than $640 million. The company plans to list on the New York Stock Exchange under the ticker symbol KING.